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eBay Earnings: What to Watch

By Demitri Kalogeropoulos – Aug 7, 2021 at 9:45AM

Key Points

  • Market share is rising as more businesses move online.
  • Margins should improve due to rising prices and increased seller fees.
  • The outlook might be cautious thanks to rising COVID-19 outbreaks.

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The online marketplace reports earnings in just a few days.

Investors have high expectations heading into eBay's (EBAY 1.06%) earnings report in just a few days. The online marketplace benefited from an ideal selling environment in the last year that helped it gain millions of new buyers and sellers on its platform.

Wall Street responded to the good news by lifting eBay's stock over 30% since just the start of 2021. But that rally will be tested when the company announces its Q2 results on Wednesday, Aug. 11. Let's look at some metrics to watch for in that report.

A young woman shopping online using a laptop.

Image source: Getty Images.

1. Sales gains

The pandemic boost should slow this quarter as eBay starts to lap some of the biggest demand surges of the COVID-19 physical retailing shutdown. Sales will rise just 5%, according to Wall Street projections.

The better number to watch is organic sales gains, which should land between 8% and 10%, if management's late April forecast was right. Sure, that's about half the growth that eBay achieved in Q1. But the gains will come on top of last year's 29% sales spike.

Look for executives to highlight new selling niches that are helping extend eBay's reach. Lately these wins have included designer watches, collectible sneakers, and lightly used apparel. eBay has a good shot at developing large revenue streams from some of these lines as it connects buyers with sellers.

2. Operating margin

The profit outlook has been brightening for most e-commerce businesses in 2021, but eBay's is even better. Its middleman status means it doesn't have to worry as much about expensive supply chain and warehousing upgrades. Higher prices aren't a big deal, either, unless they start to hurt sales volumes.

Those factors help explain why eBay generates so much more operating profit than its vertically integrated rivals like Walmart (NYSE: WMT). Earnings are also goosed by rising seller fees, which recently reached 10% of sales. Success in these scores should show up in an operating margin that continues creeping toward 30% of revenue while rivals stay stuck in the single digits.

3. The new outlook

eBay's short-term outlook might attract plenty of attention on Wednesday. Heading into the report, Wall Street is looking for sales to rise about 11% in Q3 -- on top of a 25% increase a year ago. Earnings are currently projected to rise to $0.90 per share from $0.85 per share.

CEO Jamie Iannone and his team might issue a much different detailed forecast as part of Wednesday's report. Strong buyer engagement into the second half of 2021 would support a more bullish forecast. Slowing economic growth and additional COVID-19 outbreaks, on the other hand, might convince management to be more conservative.

In either case, eBay shareholders are likely to benefit from the business's ideal balance between growth potential and current earnings production. Add in a rising dividend, and you've got a formula for market-beating returns over time, regardless of whether eBay thrills Wall Street in its August 11 earnings report.

Demitri Kalogeropoulos has no position in any of the stocks mentioned. The Motley Fool recommends eBay and recommends the following options: short October 2021 $70 calls on eBay. The Motley Fool has a disclosure policy.

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